Understanding the Pre-Year End Hype: The Super Deduction

If you’re a business owner or a final decision maker in the United Kingdom, you may have heard about the new “super deduction tax break that has been announced in the recent budget. But what exactly would qualify as a capital investment? And how can one ensure that you are going to take a full advantage of it? This is exactly where accountants come in. As financial experts with a deep understanding of tax laws and business finance, the Xero qualified accountants at PKPI are uniquely positioned to help businesses identify and maximise for the super deduction. Speak to a local PKPI accountant near you or book a free consultation with our online tax accountant.

In this blog, from the desk of Gagan Singh-CEO of UK’s fastest emerging Accounting Firm-PKPI chartered accountants, we will explore the ins and outs of the super deduction, The type of investments that would qualify for the tax break, and the steps you can take to ensure your accountant is taking to make the most of this tax break. Did you know buying an electric company car does not qualify for Super Deduction, instead you are able to claim 100% first year allowance.

What is all the buzz about Super Deduction anyway?

On the 3rd March of 2021, the Chancellor Rishi Sunak announced two temporary first year allowances to help with the economic recovery from the COVID-19 pandemic out of which Super Deduction has become the one that’s the most talked about.

Among the two incentives for business investments the super deduction is the most attractive tax that has ever been offered by the British government. This temporary tax break has been welcomed by the construction industry, most particularly the equipment manufacturers and retailer who look excited as they benefit from the hike in the orders since the COVID-19 crisis.

Let’s Understand Super Deduction better!

In laymen terms, for every pound of investment on ‘qualifying machinery’ and equipment by a business, for a period of two years from 1 April 2021, their taxes are cut by up to 25p.

In other words, a whopping 130% super-deduction capital allowance on qualifying plant and machinery investments has been granted. This will also ensure that the United Kingdom’s tax regime is one of the worlds most competitive. The government has offered immense support towards businesses ever since the country was hit by the pandemic.

For example, if a dental practice has spent about £100,000 on equipment used for treatments and furniture for the clinic, the corporation tax deduction will be £130,000, giving corporation tax relief at 19 per cent on £130,000, which is £24,700.

It is also important to note that the tax break has been made available for limited companies, not sole traders, or partnerships.

What equipment would Qualify for the Super Deduction?

There are a broad rage of plant, machinery and other assets are eligible for Super-Deduction. The other equipment that would qualify us for this are construction site plant, trucks and vans are included while the ordinary cars do not get qualified simply as they are not treated as main pool plant and machinery for capital allowance purposes.

Another factor that needs to be put in mind is that the machinery is purchased brand knew from 1 April 2021 and not second-hand. Pre-owned goods are excluded for this deduction.

Latest Government guidance for eligible assets includes:

· Solar panels

· Computer equipment and servers

· Tractors, lorries, vans

· Ladders, drills, cranes

· Office chairs and desks

· Electric vehicle charging points

· Refrigeration units

· Compressors

· Foundry Equipment

Let’s look at the companies that are planning to buy equipment using hire purchase!

Assets that are bought using a credit agreement are still qualified as long as the business owns the asset at the end of the agreement. However, making a purchase under Hire Purchase agreement can stand a great option that can be helpful for the company cashflow.

It is always important to discuss such topics with a certified accountant in order to optimise tax savings and maximise cashflow for your business.

Can Super Deduction be claimed on the assets that are rent out?

The government has excluded the expenditure on the provision of plant and machinery for leasing specifically. For Example, if you are a plant hire company, the tax break wouldn’t be applicable for the purchase of new vehicles and machinery that are planned to get rented.

The clock is ticking…

With only four weeks left to benefit from Super Deduction, the time is to act now! To discuss further Contact Gagan Singh at gagan.singh@pkpi.uk or call 07384 222781.